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"Making book against oneself," the Independence Axiom, and Nonlinear Utility Theory

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  • Green, Jerry

Abstract

An individual with known preferences over lotteries can be led to accept random wealth distributions different from his initial endowment by a sequential process in which some uncertainty is resolved and he is offered a new lottery in place of the remaining uncertainty. This paper examines the restrictions that can be placed on an individual's preferences by axioms that stipulate that such a process not be able to generate a new wealth distribution that is prima facie inferior to the original. The relationship of these axioms to the independence axiom of von Neumann and Morgenstern and to the quasi convexity of preferences in the wealth distribution are explored.

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File URL: http://dash.harvard.edu/bitstream/handle/1/3203640/green_makingbook.pdf
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Bibliographic Info

Paper provided by Harvard University Department of Economics in its series Scholarly Articles with number 3203640.

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Date of creation: 1987
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Publication status: Published in Quarterly Journal of Economics
Handle: RePEc:hrv:faseco:3203640

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  1. Machina, Mark J., 1984. "Temporal risk and the nature of induced preferences," Journal of Economic Theory, Elsevier, vol. 33(2), pages 199-231, August.
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Cited by:
  1. Kim C. Border & Uzi Segal, 2001. "Coherent Odds and Subjective Probability," Boston College Working Papers in Economics 513, Boston College Department of Economics.
  2. Grant, Simon & Kajii, Atsushi & Polak, Ben, 1998. "Intrinsic Preference for Information," Journal of Economic Theory, Elsevier, vol. 83(2), pages 233-259, December.
  3. Leeat Yariv & David Laibson, 2004. "Safety in Markets: An Impossibility Theorem for Dutch Books," 2004 Meeting Papers 867, Society for Economic Dynamics.
  4. Volij, Oscar, 2002. "A remark on bargaining and non-expected utility," Mathematical Social Sciences, Elsevier, vol. 44(1), pages 17-24, September.
  5. Eichberger, Jürgen & Kelsey, David & Schipper, Burkhard C., 2005. "Ambiguity and Social Interaction," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 59, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  6. Ludwig, Alexander & Zimper, Alexander, 2006. "Investment behavior under ambiguity: The case of pessimistic decision makers," Mathematical Social Sciences, Elsevier, vol. 52(2), pages 111-130, September.

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